$______ TOTAL RECOVERY - INSURANCE OBLIGATION - PLAINTIFF'S HOTEL AND RESTAURANT DESTROYED BY FIRE - POLICY STIPULATES THAT REBUILDING AND RESUMED OPERATIONS MUST OCCUR WITHIN REASONABLE PERIOD OF TIME - REBUILDING OF HOTEL ALLEGEDLY DELAYED BY ZONING APPROVAL PROCESS.

• Date: 01 May 2010

$1,360,000 TOTAL RECOVERY – INSURANCE OBLIGATION – PLAINTIFF’S HOTEL AND

RESTAURANT DESTROYED BY FIRE – POLICY STIPULATES THAT REBUILDING AND

RESUMED OPERATIONS MUST OCCUR WITHIN REASONABLE PERIOD OF TIME –

REBUILDING OF HOTEL ALLEGEDLY DELAYED BY ZONING APPROVAL PROCESS.

Cape May County, NJ

This insurance obligation case involved the

destruction by fire of a combination seaside hotel

and large pizza restaurant that was attached to

the hotel, both of which were owned by the

plaintiff. The plaintiff maintained that the

insurance broker negligently failed to advise that

thepremiseswereunderinsuredbymorethan

$2,000,000. The policy provided for replacement

value up to the policy limits if rebuilt within a

reasonable time. The defendant denied that the

broker acted in a negligent fashion. The fire

occurred in December, 2005 and although the

pizza portion of the premises was rebuilt and

reopened within a relatively short period of time,

the hotel has not been and the defendant

insurance company denied that the plaintiff would

be entitled to replacement costs even if the

premises had been insured for a greater amount.

The policy was for $2,600,000. The plaintiff’s appraiser

contended that the value of the structure exceeded

$5,000,000. The plaintiff contended that the broker

should have advised that the plaintiff have the prop-

erty appraised and maintained that had such

advisements been given, the coverage would have

been increased significantly.

The evidence disclosed that the plaintiff owner, who

started the business shortly after emigrating from Italy

many years earlier, had used the defendant broker

for some 20 years. The plaintiff contended that he

had relied upon the broker and that the defendant

breached his fiduciary obligation by failing to advise

the plaintiff to have the building appraised.

The defendant asserted that he did comply with his

obligation because he supplied a schedule of insur-

ance which contained pre-printed language stating

that building costs were higher and judgments were

larger. The defendant further contended that the

plaintiff was not underinsured as the policy provided

actual cash value or replacement value only if rebuilt

in a reasonable period of time and denied that the

plaintiff had complied with this requirement.

The plaintiff pointed out that although such a pre-

printed form was on documents in previous years, it

was not contained on any document relating to the

insurance for the year in question and the plaintiff

would have argued that this defense position should

clearly be rejected, irrespective of whether such pre-

printed language would otherwise be technically suf-

ficient. The defendant would have countered that it

was clear that the plaintiff nonetheless had the

requisite knowledge.

The fire was in December, 2005, and the pizza restau-

rant was rebuilt for the summer of 2006. The plaintiff

pointed out that the construction of the restaurant

was done with vertical expansion that would accom-

modate the hotel in mind, enlarged, and contended

that the business was therefore, partially replaced.

The plaintiff also maintained that it did move within a

reasonableperiodoftimetoreplacetheentirebusi

-

ness as it took two years to obtain the necessary State

and local permits. The plaintiff’s expected testimony

would have reflected the intention to rebuild as soon

as practicable.

The policy actually issued by the carrier contained

$2,625,000 for the value of the structure, $474,000 for

revenue loss and $130,000 for content loss. The con-

tent loss claim was paid in full. All but $175,000 was

paid in lost revenue and $2,390,000 was paid on the

structure prior to the filing of suit. The plaintiff brought

suit against the carrier for the difference in the build-

ing coverage and lost income.

Under the policy, the claim against the carrier for the

building loss had to be determined by an umpire,

which was binding. The umpire assessed $185,000,

which was subsequently paid by the carrier. Following

the filing of the action, the carrier paid the balance

of the income continuation loss, which was $175,000.

After these two payments, the carrier was dismissed

from the law suit and the action proceeded against

the broker only for the difference between replace-

ment cost and the limits on the policy for the struc-

ture. The plaintiff’s experts opined that the

reconstruction costs were approximately $5,800,000.

The policy had a 90% coinsurance clause, requiring

coverage for at least 90% of the costs or

approximately $5,000,000.

The plaintiff maintained that the broker knew that the

building was underinsured at the time the policy is-

sued. When the carrier quoted the premium cost, it

required an inspection of the structure. An inspection

was conducted and a report generated. That report

indicated that the replacement value was approxi-

mately $4,000,000. E-mail from the broker to the car-

rier reflected such knowledge on the part of the

broker before the policy was issued.

On the eve of trial, the case was submitted to media-

tion. The case resolved shortly before the trial was

scheduled to begin for $1,185,000 from the broker’s

Errors and Omissions carrier.

REFERENCE

Plaintiff’s architectural expert: Philip Jordan,NCARB,

AIA, LEED AP from Drexyl Hill, PA. Plaintiff’s

construction and building value expert: Lee A. Davis

from Newtown Square, PA. Plaintiff’s engineering

expert: Anthony Naccarato,P.E. from Philadelphia,

PA. Plaintiff’s insurance expert: Armondo M.

Castellini from Denville, NJ. Plaintiff’s lost revenue

expert: George Stauffer, Jr. CPA from Ocean City,

NJ.

Samax, Inc. vs. J. Byrne Agency, et al. Docket no.

CPM-L-507-07, 12-07-09.

SUMMARIES WITH TRIAL ANALYSIS7

New Jersey Jury Verdict Review & Analysis